The Framing
If someone has told you it’s time to replace your annuity, slow down.
That recommendation might be right. It might not be. But either way, it’s one of the most consequential financial decisions you can make — and it deserves more than a single conversation and a signature.
Replacing an annuity can mean surrender charges, new lock-up periods, and the loss of benefits that no longer exist in today’s market. It can also mean getting out of a bad product and into something that actually fits your life. The difference between a smart replacement and a costly mistake comes down to one thing: whether someone took the time to show you the full picture.
We sat down with Bill Aldrich, founder of AnnuityMax, to walk through how he evaluates annuity replacements — when he recommends them, when he doesn’t, and what you should demand before making any decision.
Q: When someone comes to you and says “my advisor wants me to replace my annuity” — what’s the first thing you look at?
Bill Aldrich:Not every annuity needs to be replaced. In fact, many don’t. The old saying “if it ain’t broke, don’t fix it” fits perfectly here — but the question is, how do you know for sure?
First, I look at whether the product is still aligned with your goals. Has anything major changed? Retirement, job change, shift in risk tolerance? If the annuity is still doing what it was designed to do and your life hasn’t fundamentally changed, there may be no reason to move.
Next, I look at surrender charges. It’s hard to recommend paying a fee just to move your money around without a significant reason. And then — is the recommended product even meaningfully different from what you already have? Why switch apples to apples?
The last step, and the one I think makes our reviews so effective, is the comparison table. Everything laid out on one page — what you have, what’s being proposed, and at least one alternative including a non-annuity option. When you present it that way, the answer usually shows itself very quickly.
Q: You’ve seen the other side of this, too — advisors recommending replacements that weren’t in the client’s interest. What does that look like?
Bill: I was doing some joint work with an advisor many years ago. During the appointment, she recommended an annuity replacement. Afterward, I asked her about the recommendation — because from what I could see, a brokerage account seemed like the better option for that client. A new annuity appeared completely inappropriate.
Her answer has stuck with me for fifteen years.
She said she couldn’t afford to not recommend the product that paid her an upfront commission. That this was how she had run her business for years — churning the same clients into new annuities every three to four years.
I was shocked. But I realized this does happen. It’s something to be very aware of, especially if this seems to be a pattern with your agent or advisor.
Q: Let’s talk about the math. Someone has a $300,000 annuity with a 6% surrender charge and they’re being told to replace it. What does that actually cost?
Bill:$18,000. Just to move their own money.
That’s rarely — if ever — a recommendation I can make. That’s a good year in the market for some people. To set back your retirement an entire year is a very hard thing to justify, and at my firm it would probably never even pass compliance to get executed.
This is why strategy and alignment matter so much upfront. The product needs to be right for your plan for years to come, and that requires a holistic approach — not just an individual annuity sale on its own.
If the product really is terrible and completely mismatched with the client’s goals, we would usually suggest starting a systematic 10% free annual withdrawal program to begin allocating funds where they’ll work better — without paying the surrender charge. It’s not perfect, but it’s the best option without having to eat a ridiculous penalty.
Q: When IS replacement the right call? What does that actually look like?
Bill: A lot of the time it comes from someone not understanding the product they bought. I’ve met with people who didn’t even know they were in an annuity.
Specific financial tools are best suited for certain jobs, and the times I recommend replacement are when the annuity is simply the wrong tool for the job.
The second most common scenario is with proprietary products or 401(k)/403(b) plans where that was the only product available. The client was handcuffed to a certain option. This is common with teachers who may only have one choice for their 403(b), or with proprietary firms where everyone gets the same product regardless of their individual situation.
More recently, we’ve seen clients with older annuities carrying very low rates. Interest rates were so low for so long that many prospects are coming to us with outdated rates we can do much better on. If the contract is out of surrender, it’s an easy comparison and recommendation — as long as it still aligns with the client’s goals.
The last thing I see often is just outdated contracts, especially Fixed Indexed Annuities. In the last few years, expenses have come down on a lot of annuities, rates have gone up, and the contracts are more client-friendly in almost every way. I’ll look at the whole contract in situations like that to see if it warrants a change.
And the other thing we do a bit differently — we always look at non-annuity options as well. Maybe the annuity was all wrong and you should be in a brokerage account. We look for the best solution for the client, not just the best annuity.
Q: If someone reading this is currently being told to replace their annuity, what questions should they ask before signing anything?
Bill: Ask for an illustration. Ask for a written recommendation that includes what other options were considered — specifically. And ask for a written explanation of why this is the best fit for you and your situation.
That should be the bare minimum. It’s something we provide on all of our annuity reviews. We stand behind the work we do and are not afraid to have it written down.
Beyond that, a second opinion is never a bad idea. You can find a trusted advisor in your area, and most will work on an hourly basis to give you exactly the kind of written review and explanation I just described. That will cost you in the range of $300 to $400 — but it may save you thousands.
Q: Last question. Someone is in the middle of being pitched a replacement right now. What do you want in their head before they make that decision?
Bill: You should understand what you have and what you’re buying — or being pitched. It should be explained to you why it’s in your best interest, and the reasoning should be pretty obvious.
Don’t be afraid to ask questions. If you get rushed or ushered along, that’s a red flag. And don’t be afraid to ask for a second opinion somewhere.
Annuities can be complicated — even for the people selling them — and they are long-term commitments. Take the extra time. Know what you’re buying. You will feel much better no matter what decision you make.